21) 6 Pros and Cons of the Tokenization of Real Estate

November 2, 2022 admin No Comments

21) 6 Pros and Cons of the Tokenization of Real Estate

Real estate tokenization is an emerging topic in the investment industry that is gaining traction abroad and may soon find its way to the US markets. This list of pros and cons is meant to give our readers a brief explanation of some core facets of tokenization. To learn more about tokenization and how it works, you can read our article “13) What is Real Estate Tokenization?”.

Pros

  • Fractional Ownership

This is a significant feature of real estate tokenization that bears many improvements to the real estate investing model, tailoring it specifically for smaller retail investors. This will broaden the scope of real estate opportunities for this investment class bringing in more money for firms and more opportunities for retail investors to invest.

  • Liquidity

The added liquidity to this asset minimizes cost, simplifies the investing experience for retail investors, and introduces ease of compliance between investors and firms through built-in e-contracts.

  • Diversification

Diversification is a product of the ease of fractional ownership. As it becomes easier for firms to provide fractional ownership opportunities and more investors pursue that avenue of investment, it will become easier for smaller retail investors to diversify their portfolios. This will make diversification, previously only obtainable through the purchase of REITs for smaller retail investors, a more achievable goal.

  • Low Barrier to Entry

Not only does tokenization allow the barrier of entry to lower because of a lower price, but it also grants investors access to a more available asset that is also more liquid. Lowering the barrier of entry will also provide a solution to investors that found the illiquidity, price, and time requirements of the traditional real estate investment model to be pain points in their investing experience.

Cons

  • Lack of Regulation

This is the primary negative facet of real estate tokenization because there is no concise regulation, and it varies from country to country, making international investment challenging to implement. There is also no regulatory body in the US to implement any sort of licensing or regulations. This is a significant hurdle keeping this concept from happening in the US.

  • Lack of Public Awareness

The lack of public awareness can be attributed to many factors, such as overshadowing by the flashy nature of crypto and NFTs and the newness of this type of asset. This asset also does not get much attention due to its absence in the US market. However, consumer awareness of this asset will increase with time and when tokenization is ultimately licensed and regulated

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